Taking the occasional loss comes part and parcel with investing on the stock market. And unfortunately for Allena Pharmaceuticals, Inc. (NASDAQ:ALNA) shareholders, the stock is a lot lower today than it was a year ago. The share price is down a hefty 52% in that time. Allena Pharmaceuticals hasn't been listed for long, so although we're wary of recent listings that perform poorly, it may still prove itself with time. Shareholders have had an even rougher run lately, with the share price down 24% in the last 90 days.
Allena Pharmaceuticals hasn't yet reported any revenue yet, so it's as much a business idea as an actual business. We can't help wondering why it's publicly listed so early in its journey. Are venture capitalists not interested? So it seems shareholders are too busy dreaming about the progress to come than dwelling on the current (lack of) revenue. For example, they may be hoping that Allena Pharmaceuticals comes up with a great new treatment, before it runs out of money.
We think companies that have neither significant revenues nor profits are pretty high risk. The is usually a significant chance that they will need more money for business development, putting them at the mercy of capital markets. So the share price itself impacts the value of the shares (as it determines the cost of capital). While some companies like this go on to deliver on their plan, making good money for shareholders, many end in painful losses and eventual de-listing. Allena Pharmaceuticals has already given some investors a taste of the bitter losses that high risk investing can cause.
Allena Pharmaceuticals had net cash of US$46m when it last reported (December 2018). That's not too bad but management may have to think about raising capital or taking on debt, unless the company is close to breaking even. We'd venture that shareholders are concerned about the need for more capital, because the share price has dropped 52% in the last year. You can see in the image below, how Allena Pharmaceuticals's cash and debt levels have changed over time (click to see the values).
Of course, the truth is that it is hard to value companies without much revenue or profit. Would it bother you if insiders were selling the stock? I'd like that just about as much as I like to drink milk and fruit juice mixed together. You can click here to see if there are insiders selling.
A Different Perspective
While Allena Pharmaceuticals shareholders are down 52% for the year, the market itself is up 8.2%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. The share price decline has continued throughout the most recent three months, down 24%, suggesting an absence of enthusiasm from investors. Basically, most investors should be wary of buying into a poor-performing stock, unless the business itself has clearly improved. You could get a better understanding of Allena Pharmaceuticals's growth by checking out this more detailed historical graph of earnings, revenue and cash flow.
But note: Allena Pharmaceuticals may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
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